One of Muddy Waters’ chief allegations against Burford Capital is that the funder manipulates its financial reporting. The short-seller used the Napo Pharmaceuticals example to illustrate how Burford misreports earnings. Now, after a deluge of investor concern, Burford has released a 7-page explanation of its Napo accounting.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
One of Muddy Waters’ chief allegations against Burford Capital is that the funder manipulates its financial reporting. The short-seller used the Napo Pharmaceuticals example to illustrate how Burford misreports earnings. Now, after a deluge of investor concern, Burford has released a 7-page explanation of its Napo accounting.
According to Proactive Investors, Burford explained its reasoning for logging income from Napo years before the conclusion of the case. According to Burford, the funder was set to secure the greater of two income streams from Napo: either a multiple on its investment, or a share of the winnings of a series of interconnected disputes.
Burford further explained its involvement with Jaguar Holdings, the subsidiary which Muddy Waters has argued was established with the sole intention of funding Napo (in part by Invesco, Burford’s largest shareholder), so that Napo could eventually monetize Burford’s investment in its claim. Burford claims its funding agreement with Napo converted into a debt instrument once Napo lost its Salix claim. That debt instrument later converted into an equity stake in Jaguar, once Napo fully merged with its subsidiary. Jaguar’s valuation plummeted, and it was only earlier this year that Burford adjusted its carrying value, once it became clear to management that Jaguar’s stock would not recover.
